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NZX50 drops 2.7% as Wall St rout knocks local growth stocks

Thursday 11th October 2018

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New Zealand shares fell in a widespread sell-off as rising US interest rates caused investors globally to rethink their attachment to growth-orientated stocks. 

The S&P/NZX 50 index dropped 240.48 points, or 2.7 percent to 8,810.34 as at 1.05pm. That followed a 3.2 percent slide in the Dow Jones Industrial Average. Australia's S&P/200 index was down 1.8 percent. Of the top 50 local stocks, 47 were in the red, while just three were unchanged. 

New Zealand's benchmark index is heading for its ninth straight decline, due largely to the Federal Reserve's track for higher interest rates pushing yields on US government bonds higher. The yield on US 10-year Treasuries has been at a seven-year high and closed at 3.17 percent. In contrast, New Zealand's 10-year government bond recently traded at a yield of 2.67 percent. 

Growth stocks were the among hardest hit today. A2 Milk Co dropped 6.7 percent to $9.53, Pushpay Holdings sank 6.2 percent to $3.50 and Synlait Milk fell 5.4 percent to $9.15. All three have been among the best performers in the past two years, up 23 percent, 18 percent and 30 percent respectively over the past 12 months. 

Rickey Ward, NZ equity manager at JBWere, said there's been a re-rating of growth stocks that's underpinned the pull-back. While it's easy to paint a negative picture, Ward said the local market is still up for the year - at around 5 percent. 

"A short-term trader has to be prepared to be whiplashed every now and then. But a long-term investor shouldn’t be too concerned at the current time," he said. 

No sector was spared from today's sell-off. Rate-sensitive stocks fell, with Property For Industry down 2.3 percent to $1.72, Meridian Energy declining 2.2 percent to $3.15 and Goodman Property Trust down 1.9 percent at $1.525. The retirement sector was weaker with Summerset Group falling 3.3 percent to $7.02 and Ryman Healthcare dropping 4.4 percent to $12.52. 

Even exporters - which would typically benefit as higher US rates weigh on the kiwi dollar - were caught. Fisher & Paykel Healthcare decreased 2.5 percent to $14.26 and Scales Corp declined 0.8 percent to $4.81. 

Grant Davies, an investment adviser at Hamilton Hindin Greene, said in the past 18 to 24 months his clients had been cashing up some of their recent profits and shifting to more defensive assets. 

"Shares markets will come under pressure from rising interest rates - there's no panacea to that," he said. 

(BusinessDesk)

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